Severe shortage in Tokyo apartment supply not necessarily due to high demand

Rising construction costs and project delays are causing the supply of new apartments in the greater Tokyo area to plummet. In 2013, the total number of brand new apartments to hit the market dropped 23.8% from the previous year to 56,478 apartments.

From August 1, MUFJ, SMBC and Mizuho Bank lowered the prime rate on their 10-year fixed rate home loans to a record low 1.3%. While long-term interest rates are showing signs of falling, the recent rise in the consumption tax rate has led a drop in housing starts as well as a drop in sales of new apartments. Banks are now competing to attract borrowers.

While new apartment sales have slowed, they still remain at healthy levels. The contract rate on new apartments in June was 76.6%. Although this was a decline of 5 points from June 2013 and 2.3 points lower than the previous month, it is still above the level of 70% which is considered the threshold for healthy sales.

What is worrying, however, is the drop in supply. According to the Real Estate Economic Institute, 3,503 brand new apartments were offered for sale in the greater Tokyo area in June 2014, down 28.3% from June 2013 and down 18.5% from the previous month. This level is very close to the last low of 3,441 apartments offered for sale in June 2011 (a few months after the 2011 Tohoku disaster).